Boston ERC Fraud

Get Help from Experienced Boston ERC Attorneys

The Internal Revenue Service (IRS) and the U.S. Department of Justice (DOJ) are targeting companies and individuals in Boston for Employee Retention Credit (ERC) fraud. As a COVID-19 pandemic relief program, the ERC was intended to serve as a financial lifeline for struggling businesses during the pandemic. While it served this purpose for many businesses, it also proved to be a prime target for fraud. As a result, the IRS and DOJ are now scrutinizing businesses’ ERC claims, and this scrutiny is leaving many business owners in need of experienced Boston ERC attorneys.

In many cases, the IRS and DOJ’s ERC fraud investigations are leading to criminal charges. Fraudulently claiming a refundable tax credit like the ERC is a serious federal offense that can lead to substantial fines and years—or even decades—behind bars. While it is possible to resolve many cases without criminal prosecution (and often without civil liability as well), doing so requires experienced Boston ERC attorneys who can effectively deal with the federal government on your behalf.

What is the Employee Retention Credit (ERC)?

The Employee Retention Credit was a refundable payroll tax credit offered to qualifying businesses for the 2020 and 2021 tax years. It was taken against employers’ federal payroll tax deposits, and qualifying businesses could receive refunds regardless of their payroll tax liability.

The amount of the ERC changed from 2020 to 2021. For 2020, qualifying businesses could claim 50 percent of up to $10,000 in qualified wages per employee per year. For 2021, qualifying businesses could claim 70 percent of up to $10,000 in qualified wages per employee per quarter. As with all tax laws, there were some limitations and exceptions (i.e., recovery startup businesses were limited to claiming $50,000 per quarter)), but these were the general rules that applied to most employers.  

A key aspect of the ERC, and an aspect that is playing a major role in the IRS and DOJ’s enforcement efforts, was the fact that it was only available to qualifying businesses. To qualify for the ERC, a business must have either:

• Sustained a full or partial suspension of its operations due to a government mandate limiting commerce, travel or group meetings due to the COVID-19 pandemic;
• Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021; or,
• Qualified as a recovery startup business for the third or fourth quarter of 2021.

For purposes of claiming the ERC for 2020, a “significant decline” in gross receipts is defined as “when gross receipts are less than 50% of gross receipts for the same calendar quarter in 2019.” A business’s significant decline in gross receipts ended under the ERC when its gross receipts were “greater than 80 percent of gross receipts for the same calendar quarter in 2019.” In 2021, businesses must have suffered a 20 percent quarter-over-quarter decline in gross revenue to qualify for the ERC.

Under the American Rescue Plan (ARP), a “recovery startup business” was any business that began operations after February 15, 2020, and had average annual gross receipts of less than $1 million. While many new companies qualified as recovery startup businesses under the ARP, this option to qualify for the ERC proved to be a significant source of fraud. Many people claimed to start businesses and pay wages when they in fact did not, and many other businesses promoted services online (and are still promoting services online) offering to help people start businesses solely for the purpose of claiming the ERC.

There were many other complexities to the ERC as well. From issues related to telework to issues with calculating qualified wages, these complexities led to many businesses calculating the ERC incorrectly. While inadvertent ERC calculation errors can trigger immediate liability for back taxes, interest and penalties, allegations of intentionally overcalculating the ERC can lead to criminal prosecution for tax fraud and other federal crimes.

Why You May Need Boston ERC Attorneys

When might you need a team of Boston ERC attorneys? Due to the federal government’s focus on prosecuting ERC fraud, we are recommending that all businesses that have claimed the ERC consult with legal counsel regarding the credit’s eligibility requirements. For businesses that aren’t yet facing an audit or investigation and that have claimed the ERC improperly, taking proactive steps to remedy the issue can substantially mitigate the consequences.

If you are currently facing an audit or investigation related to your company’s Employee Retention Credits, you should engage a IRS criminal tax lawyer immediately. Criminal investigations present substantial risks (including the risk of federal imprisonment), and audits can lead to investigations if revenue agents uncover evidence of intentional fraud. When you engage our Boston ERC attorneys, we can interface with the IRS or DOJ on your behalf, and we can work to steer the audit or investigation toward a favorable resolution that avoids unnecessary penalties.  

Prosecution for Properly vs. Improperly Filing Claims

When facing an ERC fraud audit or investigation, it is imperative to know whether your company has claimed the credit properly. Defending against an audit when you can demonstrate compliance and defending against an investigation when you are at risk for criminal prosecution are two very different scenarios.

Our Boston ERC attorneys work closely with our clients to quickly assess their compliance with the credit’s eligibility criteria and their calculation of the credit based on their qualifying employee wages. Once we know whether (and to what extent) our clients have complied with the requirements for claiming the ERC, then our IRS criminal ERC lawyer can formulate and execute a strategic defense. When our clients have fully complied with the credit’s requirements, we can help favorably resolve their audits and investigations by showing that:

• They qualified for the ERC based on one (or more) of the criteria listed above;
• They correctly calculated their qualifying employee wages and applied the credit percentage for the correct tax year; and,
• They remained under the applicable credit cap and otherwise complied with the ERC’s requirements.

When a business has not fully complied with the ERC’s requirements, defending against prosecution for an improperly filed claim involves identifying the specific violation (or violations) at issue and understanding why they happened. While businesses can face civil liability for unintentional violations, allegations of knowingly or intentionally violating the law can trigger a host of criminal charges.

Several issues—both inadvertent and intentional—can expose businesses and their owners to risk in ERC fraud audits and investigations. Some examples of these issues include:  

• Claiming the ERC when a business does not qualify or have qualifying wages
• Claiming the ERC for ineligible employees (i.e., majority owners and related individuals)
• Claiming the ERC for wages paid with funds from a Paycheck Protection Program (PPP) loan
• Claiming the ERC for wages on which the company did not pay FICA taxes
• Improperly calculating the ERC under the 2020 or 2021 credit rules

Again, these are just examples. The IRS and DOJ are examining all aspects of businesses’ ERC claims, and any oversights, shortcomings or failures can lead to civil liability or criminal prosecution. Even mistakes by tax preparers and other third-party service providers (i.e., online businesses promoting ERC filing services) can expose businesses and their owners to civil or criminal penalties, as taxpayers are directly liable for the contents of their returns.

FAQs: Defending Against ERC Fraud Allegations in Boston

What are the federal charges for ERC fraud?

In criminal cases involving allegations of ERC fraud, the DOJ can file a litany of charges against both businesses and their owners. Depending on the specific allegations at issue, mail fraud, wire fraud, tax evasion, aggravated identity theft, money laundering, conspiracy, and government fraud charges could all be on the table.

What are the federal penalties for ERC fraud?

The federal penalties for ERC fraud depend on several factors. In civil cases, businesses can face liability for back taxes, interest and IRS penalties. In criminal cases, businesses can face six or seven-figure criminal fines, while business owners can face fines and federal imprisonment.

What should I do if I made a mistake when claiming the ERC?

If you made a mistake when claiming the ERC, you should consult with an IRS criminal ERC lawyer promptly. To avoid unnecessary consequences, you will need to correct the mistake before it triggers scrutiny from the IRS.

What should I do if I am under investigation for ERC fraud?

If you are under investigation for ERC fraud, you should consult with an attorney promptly in this situation as well. These investigations are moving quickly, and allegations of intentional fraud could lead to an indictment on multiple federal charges.

Contact the Boston ERC Attorneys at Thorn Law Group

If you have questions or concerns about your business’s Employee Retention Credits, we strongly encourage you to speak with one of our Boston ERC attorneys. We can help you make the right decisions, and we can help protect you against a federal audit or investigation if necessary. To arrange a confidential consultation, please call Kevin E. Thorn, Managing Partner of Thorn Law Group at 617-692-2989 today.